Blame Game III

I went on a shopping trip today to buy a desk for my two youngest children (10, 6), both girls.  As I drove, I listened to radio C-Span, because it is “guilt week” for the NPR stations in the area.  In hindsight, I would have rather listened to the begging from the NPR affiliates than what I heard on C-Span.

The program that I heard was hearings on the financial crisis.  All of the testimony fell into the bucket of “not me, there are evil people who tricked us.”  My daughters must have found my negative commentary to be funny.

We have the government that we deserve.  Congress listens to self-interested loonies, rather than seek out those with intelligence that don’t have an axe to grind.  When I wrote the pieces, Blame Game, and Blame Game, Redux, what I tried to express is that there are a lot of parties to blame in our current crisis, and that everyone should ‘fess up their culpability.

With that, I want to add on a few more responsible parties:

29) FICO srcoring enabled loan underwriting to decouple from the local bank investigating the character of the borrower.  There is something lost when the underwriter does not explore the qualitative aspects of the borrower.

30) The fools who wrote that said that it is easy to make money in stocks or real estate.  They always show up near the end of the cycle.

31) Dojo suggests the Prime Brokers — How about the Prime Brokerage business model followed by most banks and investment banks which allowed their speculative clients to go “nuclear” in any marketplace as long as they had a credit facility and a cell phone. A $10 million hedge fund run out of a basement in Westchester County NY or Orange County CA could control $1 Billion worth of goodies in many cases. Yikes!! A bit severe, but there is some validity there.

32) dlr suggests the FDIC — The bank regulators at the FDIC. It was their JOB to maintain oversight of the banking industry. Every regulator who allowed the banks they were monitoring to giving liar loans, or pick a rate loans, or zero down payment loans, and didn’t call a halt, should be fired for malfeasance. The regulators who had oversight of Washington Mutual and Indy Mac should be fired. And their BOSSES should be fired. Right up to Shiela [sic] Blair. I think that all of the banking regulators deserve blame here, plus the Bush administration, who encouraged malign neglect.

My main point is this: if you are defending your core constituency in this crisis, you are at least partially wrong.  There are so many culpable parties, that few are blameless.

Final note: in many ways, this is a proper comeuppance to US policy that encourages home ownership.  Policy was trying to push home ownership to 70%+, when reality should have said “be happy with a stable 60%.”  Home ownership is not an unmitigated good.  Many cannot truly afford it, and the government tricks them into buying what they cannot afford with reasonable probability.

4 Comments

  • William says:

    I think the naked shorts who fail to deliver borrowed stock on time deserve blame. Patrick Byrne has a lot to say about this.

  • Annette S. says:

    Another example of manic optimism were the Buy-vs-Rent calculators you could find on bank’s and financial websites.

    I simply never encountered even a single one that gave the option of a DECLINE assumption in home price appreciation.

    It is this kind of pollyana attitude that gets people into trouble. Talk about lack of respect for the devil’s advocate-side of the equation!

  • Annette, that’s a good one, I hadn’t thought of that. William, that’s another cause, but even with naked shorting and selling of CDS, you can’t destroy a firm with a strong balance sheet and free cash flow.

  • Erik Kengaard says:

    We have the government that some people deserve.
    It is important to assign blame – or fault – so that appropriate corrective action can be taken. An effective approach would be to use the approach of a tort lawyer. Who had what duties, and to what extent did they perform? Bankers, for example, have no duty to protect the public interest. Congress does (via the oath of office, incorporating the preamble into the substance of the constitution). Bankers, of course, have a duty not to commit fraud, but few bankers have been indicted, at least do far.
    Congress, and the administration of Bush and Clinton, and now Obama, are the main culprits. Chris Dodd is a tool of the banking industry. Look it up. Barney Frank and his insane crusade to give houses to the poor destroyed Fannie Mae and Freddie Mac. Not sure? Review the transcripts of the House Financial Services Committee meetings. Tom Davis (House Committee on Oversight and Government Reform under Bush) fiddled while Rome burned (he investigated baseball while the financial industry crashed).
    Congress writes the rules. Bankers operate within the rules or go to jail. Few bankers are going to jail.
    We all get the government some people – those who don’t get involved – deserve.